Many traders find it difficult to trade the yen / dollar currency pair. However, you should not consider the yen only in comparison with bonds, invoices and bills, because the main element of the pair is the interest rates of each country, and not just Treasury bills .
That is, in other words, the USD / JPY pair shows the level of risk that arises at the time of buying / selling in the Forex market, and also depends on interest rates. In which direction the movement of the currency pair will take place, you can, again, determine additionally where the interest rate is dominant.
As a rule, the dollar / yen pair is considered in relation to US Treasury securities. In case of an increase in the value of bills and bonds, the price of a currency pair, on the contrary, undergoes a decline.
This relationship can be viewed in two ways. On the one hand, the US dollar, on the other, the interest rate. if the interest rate moves steadily upward and continues to move in this direction in the future, the price of bonds begins to decline. In turn, this leads to an increase in the value of the dollar and a strengthening of the dollar / yen currency pair in the Forex market.
The market becomes profitable in terms of Treasuries, but the price of the USD / JPY pair decreases. Thus, it is clear that bond prices and yields are inversely proportional.
The yen is considered to be a reserve currency. When selling yen, which have a lower interest rate compared to dollars, euros, pounds sterling and other currencies, it becomes possible to borrow them at a low interest rate in order to be able to invest in more profitable and profitable instruments and carry out a carry trade.
The carry trade is a strategy that performs the main reserve function. It is used, for example, when you need to buy bonds. To do this, they sell yens for dollars, and for them they buy the necessary bonds. The carry trade was especially beneficial for Japanese traders, as the country relies on merchandise exports to keep its economy up and running. This strategy is a kind of compromise between capital gains and interest income.
Speaking about the American stock market, bonds and the dollar / yen currency pair, the following relationship should be noted: with the growth of the stock market, the value of bonds decreases, while the price of USD / JPY rises.
At the same time, these relations are characterized by a correlation, but they never remain unchanged.
When stocks and bonds change their inverse correlation, trading the dollar / yen currency pair will not be based on traditional correlation at all. When the correlation of stocks and bonds changes, it does not last long, so traders should be extremely careful and careful when making decisions and analyzing the market. If the correlation has changed during the trading process, it is better to stop and wait until the situation evens out.
